Politics and Economics Suggest that The Cannabis Market Can Only Grow Higher

Alessandro Bruno
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I am not a marijuana/cannabis user, but… I drink alcohol in moderation and generally as an accompaniment to good food. I have a conception of the cannabis plant no more or less favorable to that of my peers, even if far less favorable to millennials. Nevertheless, I have travelled far and wide; and I have studied ancient history, modern history, along with global societal and political phenomena and I have long come to the conclusions that, while there are many ‘demons’ in the World, cannabis is not one of them. It may not be the most enthusiastic endorsement, but I’m convinced that cannabis will soon be fully legalized in the United States – and soon after, inevitably, in much of the so-called ‘West’. One of the catalysts adding impetus to the ‘legalization’ movement (regardless of whether the Right or the Left takes charge of it) draws strength from the political morass that has stalled the Left, both in the United States and the rest of the geopolitical ‘West’ for the past few decades.

The Political Case for Cannabis

The global political Left has lost its ideological compass; it has stopped acting as a true opposition when the ‘Right’ holds power – while taking decisions that are little or no different from the Right when it does hold power. Accordingly, stopping short of re-reading and re-interpreting Karl Marx’s ‘Das Kapital’ to find new ways of tackling income inequality, the Left has little left to offer its traditional voters other than to support the legalization of cannabis. If the Democrats running in the 2020 election want to improve their chances of standing out as an alternative, improving their chances of winning, they will enthusiastically promote the legalization of cannabis.

Through cannabis, the Left has a chance to own the role of persuading voters that ‘change’ (the kind of generic change that politicians claim to represent during electoral seasons) passes through the evolution of soft-drug legislation. In doing so, it will put the ‘Right’ in a difficult position: the kind best described by the cliché: if you can’t beat them, join them. The Left has restored a little of its ‘shine’ (or, at the very least, it’s given someone a reason to vote) in California, Oregon, Nevada, Portugal, Canada, Spain and other countries leveraging on cannabis legalization. But, cannabis legalization will be an inevitable passage for society regardless of how voters’ political compass reads. Democrats and Republicans alike can use cannabis legalization as a way to show that the United States still has the ability to lead, regaining its eroding prestige as new and old powers aim to dethrone Washington’s supremacy.  Both Left and Right can agree that the legalization of cannabis creates jobs and creates wealth, so much so that this new sector is emerging as one of the drivers of employment growth in the countries that have made the ‘big move’. It should not be surprising, then, that in the UK, Jeremy Corbyn’s Labour Party has proposed legalizing – decriminalizing cocaine and heroin – all drugs borrowing from the Portuguese approach if it were elected into power in the next – and probably imminent – elections (Source: The Independent). Such a step would put pressure – whether or not Brexit goes through – on many European, and allied governments, to consider similar approaches.

Legalization Means Job Growth: Both Left and Right Can Agree on That?

According to the latest data published by the analysts of Whitney Economicsand Leafly (Source: CNBC), the legalization of cannabis has created over 200 thousand full-time jobs – twice as many as employed by the textile sector and four times as many as the coal industry – of which 64 thousand only in 2018. Full-time jobs should grow to 340 thousand in 2022 with an increase 21% each year (Forbes). And more business means more income – and more tax revenues.

Income and taxes

In 2016, according to Tom Adams, the director of BDS Analytics, legal marijuana generated some USD 6.56 billion in sales in the United States. The following year the figure reached almost 9 billion dollars, of which 1.7 billion in tax revenues and therefore taxes (Source: CNN).  This is all money that fills government coffers, and which can be used for social purposes such as scholarships and housing programs for the homeless, healthcare and safety when you’re from the left – more military weapons if you’re from the neo-conservative right and more infrastructure and jobs regardless of political tendency. Simply put, legal cannabis, in addition to being far more controllable (healthier, less risky) creates jobs, money and taxes. Opposition to cannabis legalization comes from medicine, alcohol and tobacco multinationals – but, they too will have little choice but to adapt or risk missing out on the market once it has become legal.

In recent years (and all over the world, not just North America) cannabis has been an important subject of discussion, as much for its touted health properties as for its economic potential. What is certain is that cannabis has been rediscovered after an over 80-years long demonization, which effectively began in the United States. There is no turning back: as U.S. legislators, and organized criminals, discovered in the 1920’s and 30’s, prohibition is obsolete. As for cannabis, it can grow just about everywhere and the business has taken off, while the limits have not yet been approached, let alone tested. Those countries, in OECD (but also in most parts of Latin and South America), that have not yet opened up to the idea of cannabis legalization will soon be forced to support it: a large portion of the population (and even politicians) all over the world support legalization.

Legalizing cannabis would add billions of dollars, euros and pesos to State coffers. The big barrier remains the idea that cannabis is a ‘gateway’ drug, leading to the consumption of heavier drugs. Regardless of the considerable research, starting with the study conducted by the Institute of Medicine of the National Academy of Sciences in 1999, which reported that there’s no conclusive evidence that the drug effects of marijuana are causally linked to the subsequent abuse of other illicit drugs (Source: National Academy of Sciences). Indeed, if cannabis is classifiable as a gateway drug, then how would one describe alcohol and cigarettes? Alcohol can be said to have far worse effects than cannabis: it alters an individual’s psychophysical state and produces notorious corollary side effects such as road accidents and liver damage.

The Economic Case for Cannabis

More than the alcohol market – which some suggest might lose business as cannabis legalization progresses – it’s the medical aspect of the business that may raise the deepest concerns of vested interests. But, one thing is certain: the cannabis market has long moved beyond the ‘niche’ and will become mainstream. It’s already well on the way to becoming a booming global sector and investors can be confident that the returns will materialize. Cannabis, or marijuana for aficionados of the retro-libertarian mysticism flavored culture of the 60’s, in the 21st century will find a more welcoming home on Wall Street than in the ‘Communes’ of the 1960’s.

Investors, particularly older ones, may still feel uneasy about tying their retirement funds to the fate of the cannabis industry. And, to be sure, some of the prohibitionist climate, or stigma, remains. But, it’s eroding. Last April, Washington DC based consultancy New Frontier Data  estimated that the total value of the global market for cannabis, legal or otherwise, is some $344 billion, with Asia leading the pack at $132.9 billion, followed by North America at $85.6 billion, Europe $68.5 billion, Africa $37.3 billion and Latin America $9.8 billion (Source: New Frontier Data). More importantly, perhaps, more and more investors will come to realize that cannabis is not merely an instrument to feed modern hedonistic tendencies and proselytes for alternative medicine. Rather, it’s the base for multiple economic sectors from pharmaceuticals to cosmetics, ‘green’ construction, food, beverages, paper and more. Edible cannabis products will be available for the first time in the Canadian market – they already are in some U.S. States like California – by the end of 2019 and it won’t be long before this trend spreads beyond the Atlantic Ocean. The market for cannabis-based food & beverages, topical creams, capsules will help boost profit margins and spread to the cannabis retail space as well.

Some investors, those already sold on the potential of cannabis, may have concerns about the continued strength of the illegal market. However, the cannabis industry, unlike other start-up or budding industries (such as the tech sector in the 90’s or the personal computer of the 80’s) does not have to worry about building market demand. The success of the illegal market proves that demand exists and is, no pun intended, high. Rather, cannabis entrepreneurs and investors must simply wait for anti-prohibitionist policies to fade, allowing for consumers to gradually shift from illegal to legal sources. The diversification if the legal cannabis sector through cosmetics, edibles, pharmaceuticals and other variations on the theme will facilitate the shift.  Cannabis is the business of the future. North America has led the way first with individual U.S. States, then Canada.

The ultimate push will come after Washington moves to legalize cannabis at the Federal level. Europe and other regions won’t be able to resist the tidal wave. Indeed, Europe is destined to become one of the biggest markets and financial companies/banks have already started betting on widespread legalization. Consider that Vancouver based asset manager Canaccord Genuity, noted for working with newly listed cannabis companies, has opened a European division. And Europe is home to many of the largest pharmaceutical companies: it won’t be long before they decide to approach the cannabis world. Billions are ready to be poured into the sector, as the prohibitionist logic that has prevailed since the 1930’s has given way to pragmatism and greed. Therefore, dear investors, don’t be afraid of cannabis stocks. Invest in the ones you like and consider all the risks – noting that the risk of a glitch in the worldwide legalization process should is not a concern.

Alessandro Bruno

Alessandro Bruno

Alessandro Bruno, born in Naples, (BA and MA in International Relations, University of Toronto). Alessandro is a research analyst and writer in various business sectors and international politics. He was a Programme Officer for the UN in North Africa and a senior for one of the first international sustainable investment...
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